1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
--------------------------------------------
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT
For the transition period from to
------------ ---------------
Commission File No. 0-28838
PEOPLES FINANCIAL CORPORATION
- --------------------------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Ohio 34-1822228
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
211 Lincoln Way East, Massillon, Ohio 44646
- --------------------------------------------------------------------------------
(Address of principal executive offices)
(330) 832-7441
- --------------------------------------------------------------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
August 1, 2001 - 1,234,085 common shares
- ----------------------------------------------------------------------
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
Page 1 of 19 pages
2
INDEX
-----
PEOPLES FINANCIAL CORPORATION
PAGE
PART I - FINANCIAL INFORMATION
Consolidated Statements of Financial Condition 3
Consolidated Statements of Earnings 4
Consolidated Statements of Comprehensive Income 5
Condensed Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7
Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II - OTHER INFORMATION 17
SIGNATURES 19
Page 2 of 19 pages
3
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
JUNE 30, SEPTEMBER 30,
ASSETS 2001 2000
--------- ---------
Cash and due from banks $ 430 $ 437
Interest-bearing deposits in other financial institutions 2,094 1,191
--------- ---------
Cash and cash equivalents 2,524 1,628
Securities available for sale 376 518
Securities held to maturity - (market value of $897 and $984
as of June 30, 2001 and September 30, 2000) 860 946
Mortgage-backed and related securities available for sale 5,450 6,847
Mortgage-backed and related securities held to maturity
(market value of $2,076 and $2,559 as of June 30, 2001
and September 30, 2000) 2,014 2,521
Loans receivable - net 91,787 84,834
Office premises and equipment - net 1,587 1,588
Stock in Federal Home Loan Bank 1,092 993
Accrued interest receivable 346 350
Prepaid expenses and other assets 106 213
--------- ---------
Total assets $ 106,142 $ 100,438
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 75,148 $ 70,758
Advances from the Federal Home Loan Bank 20,000 18,650
Other liabilities 143 290
Accrued federal income taxes 83 116
Deferred federal income taxes 293 309
--------- ---------
Total liabilities 95,667 90,123
Shareholders' equity
Preferred stock - authorized 1,000,000 shares without par
value; no shares issued - -
Common stock - authorized 6,000,000 shares without par
or stated value; 1,491,012 shares issued - -
Additional paid-in capital 7,360 7,360
Retained earnings 6,212 6,020
Accumulated comprehensive income, unrealized gains
on securities designated as available
for sale, net of related tax effects 281 313
Treasury shares, at cost - 256,927 shares (3,378) (3,378)
--------- ---------
Total shareholders' equity 10,475 10,315
--------- ---------
Total liabilities and shareholders' equity $ 106,142 $ 100,438
========= =========
See notes to consolidated financial statements
Page 3 of 19 pages
4
CONSOLIDATED STATEMENTS OF EARNINGS
-----------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands, except share data)
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
Interest income
Loans $5,106 $4,404 $1,727 $1,544
Mortgage-backed and related securities 466 525 139 180
Securities 102 110 33 34
Interest-bearing deposits and other 40 95 12 22
------ ------ ------ ------
Total interest income 5,714 5,134 1,911 1,780
Interest expense
Deposits 2,881 2,442 973 836
Borrowings 851 663 259 268
------ ------ ------ ------
Total interest expense 3,732 3,105 1,232 1,104
------ ------ ------ ------
Net interest income 1,982 2,029 679 676
Provision for losses on loans 9 9 3 3
------ ------ ------ ------
Net interest income after provision for
losses on loans 1,973 2,020 676 673
Other income
Gain on sale of securities available for sale 255 387 96 -
Gain on sale of loans 1 - 1 -
Other operating 115 41 43 14
------ ------ ------ ------
Total other income 371 428 140 14
General, administrative and other expense
Employee compensation and benefits 902 1,082 305 271
Occupancy and equipment 261 191 90 63
Franchise taxes 108 135 33 43
Federal deposit insurance premiums 23 17 8 3
Data processing 109 86 37 29
Advertising 63 44 24 18
Other operating 269 277 91 96
------ ------ ------ ------
Total general, administrative and other expense 1,735 1,832 588 523
------ ------ ------ ------
Earnings before income taxes 609 616 228 164
Federal income taxes 196 196 74 51
------ ------ ------ ------
NET EARNINGS $ 413 $ 420 $ 154 $ 113
====== ====== ====== ======
EARNINGS PER SHARE
Basic $ .33 $ .34 $ .12 $ .09
====== ====== ====== ======
Diluted $ .33 $ .34 $ .12 $ .09
====== ====== ====== ======
See notes to consolidated financial statements
Page 4 of 19 Pages
5
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
-----------------------------------------------
PEOPLES FINANCIAL CORPORATION
(In thousands)
NINE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
Net earnings $ 413 $ 420 $ 154 $ 113
Other comprehensive income, net of tax:
Unrealized holding gains (losses) on securities
during the period 136 (190) 1 (53)
Reclassification adjustment for realized gains
included in earnings, net of tax of $87 and $132 for
the nine months ended June 30, 2001 and 2000
and $21 and $109 for the three months ended
June 30, 2001 and 2000 respectively (168) (255) (63) -
----- ----- ----- -----
Comprehensive income (loss) $ 381 $ (25) $ 92 $ 60
===== ===== ===== =====
See notes to consolidated financial statements
Page 5 of 19 Pages
6
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
-----------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the nine months ended June 30,
(In thousands)
2001 2000
Cash flows from operating activities:
Net earnings for the period $ 413 $ 420
Adjustments to reconcile net earnings to net cash
from operating activities (282) (128)
-------- --------
Net cash from operating activities 131 292
Cash flows from investing activities:
Principal repayments on mortgage-backed and related securities 1,994 1,601
Purchase of mortgage-backed and related securities available for sale - (1,026)
Proceeds from sale of securities 259 395
Principal repayments and maturities of securities 87 1,012
Purchase of Federal Home Loan Bank stock (42)
Loan principal repayments 14,510 11,829
Loan disbursements (21,438) (21,130)
Purchase of office premises and equipment (123) (36)
-------- --------
Net cash from investing activities (4,753) (7,355)
-------- --------
Cash flows from financing activities:
Net increase in deposit accounts 4,390 2,772
Proceeds from Federal Home Loan Bank advances 31,300 46,500
Repayment of Federal Home Loan Bank advances (29,950) (39,000)
Cash dividends paid on common stock (222) (4,292)
-------- --------
Net cash from financing activities 5,518 5,980
-------- --------
Net increase (decrease) in cash and cash equivalents 896 (1,083)
Cash and cash equivalents at beginning of period 1,628 2,620
-------- --------
Cash and cash equivalents at end of period $ 2,524 $ 1,537
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Federal income taxes $ 229 $ 95
======== ========
Interest on deposits and borrowings $ 3,754 $ 3,056
======== ========
Supplemental disclosure of noncash investing activities:
Unrealized net losses on securities available for sale,
net of related tax effects $ (32) $ (445)
======== ========
See notes to consolidated financial statements
Page 6 of 19 Pages
7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the nine and three month periods ended June 30, 2001 and 2000
1. Basis of Presentation
---------------------
The accompanying unaudited consolidated financial statements were prepared in
accordance with instructions for Form 10-QSB and, therefore, do not include
information or footnotes necessary for a complete presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles. Accordingly, these financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto of Peoples Financial Corporation included in the Annual Report on Form
10-KSB for the year ended September 30, 2000. However, in the opinion of
management, all adjustments (consisting of only normal recurring accruals) which
are necessary for a fair presentation of the consolidated financial statements
have been included. The results of operations for the nine- and three-month
periods ended June 30, 2001, are not necessarily indicative of the results which
may be expected for an entire fiscal year.
2. Principles of Consolidation
---------------------------
The accompanying consolidated financial statements include the accounts of
Peoples Financial Corporation ("PFC" or the "Corporation") and Peoples Federal
Savings and Loan Association of Massillon ("Peoples Federal" or the
"Association"). All significant intercompany items have been eliminated.
3. Use of Estimates
----------------
To prepare financial statements in conformity with accounting principles
generally accepted in the United States, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the amounts reported in the financial statements and the disclosures
provided, and future results could differ. The allowance for loan losses and
fair values of financial instruments are particularly subject to change.
Page 7 of 19 pages
8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
------------------------------------------------------
PEOPLES FINANCIAL CORPORATION
For the nine and three month periods ended June 30, 2001 and 2000
4. Earnings Per Share
------------------
Basic earnings per share is computed based upon the weighted-average shares
outstanding during the period. Weighted-average common shares outstanding
totaled 1,234,085 for both the nine- and three-month periods ended June 30,
2001. Weighted-average common shares outstanding totaled 1,253,446 and 1,234,085
for the nine and three-month periods ended June 30, 2000, respectively.
Diluted earnings per share is computed taking into consideration common shares
outstanding and dilutive potential common shares to be issued under PFC's stock
option plan. Weighted-average common shares deemed outstanding for purposes of
computing diluted earnings per share were the same as those for basic earnings
per share for all periods presented.
Options to purchase 116,617 shares of common stock at a weighted-average
exercise price of $12.39 per share were outstanding at June 30, 2001 and 2000,
but were excluded from the computation of common share equivalents because their
exercise prices were greater than the average market price of the common shares.
5. Reclassifications
-----------------
Certain prior year amounts have been reclassified to conform to the 2001
consolidated financial statement presentation.
Page 8 of 19 pages
9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
PEOPLES FINANCIAL CORPORATION
Note Regarding Forward-Looking Statements
- -----------------------------------------
In addition to historical information contained herein, the following discussion
contains forward-looking statements that involve risks and uncertainties.
Economic circumstances, PFC's operations and PFC's actual results could differ
significantly from those discussed in the forward-looking statements. Some of
the factors that could cause or contribute to such differences are discussed
herein but also include changes in the economy and interest rates in the nation
and PFC's market area generally. See Exhibit 99 hereto, which is incorporated
herein by reference.
Some of the forward-looking statements included herein are the statements
regarding management's determination of the amount and adequacy of allowance for
loan losses and the effect of certain recent accounting pronouncements.
Discussion of Financial Condition Changes from September 30, 2000 to June 30,
- -----------------------------------------------------------------------------
2001
- ----
PFC's assets totaled $106.1 million as of June 30, 2001, an increase of $5.7
million, or 5.7%, over the September 30, 2000 total. The increase in assets was
funded primarily by an increase in deposits of $4.4 million and an increase in
advances from the Federal Home Loan Bank ("FHLB") of $1.4 million. The increase
in assets was comprised primarily of increases in loans receivable of $7.0
million and cash and cash equivalents of $896,000, partially offset by net
decreases in securities and mortgage-backed securities of $2.1 million.
Cash and cash equivalents totaled $2.5 million at June 30, 2001, an increase of
$896,000, or 55.0%, over the total at September 30, 2000.
Securities totaled $1.2 million at June 30, 2001, a decrease of $228,000, or
15.6%, from the total at September 30, 2000. This decrease resulted primarily
from a net decrease of $138,000 in unrealized gains and maturities of $87,000.
Mortgage-backed securities totaled $7.5 million at June 30, 2001, a decrease of
$1.9 million, or 20.3%, from the total at September 30, 2000. This decrease
resulted primarily from principal repayments of $2.0 million, partially offset
by an increase in net unrealized gains of $90,000. Proceeds from principal
repayments were primarily used to fund loan originations.
Net loans receivable totaled $91.8 million at June 30, 2001, an increase of
$7.0. million, or 8.2%, over the September 30, 2000 total. The increase is
attributable to Peoples Federal's continued focus on its marketing program to
originate new fixed and adjustable-rate mortgage loans and home equity loans and
lines of credit at the main office and the branch lending office. The allowance
for loan losses totaled $237,000 at June 30, 2001, an increase of $2,000, from
the balance at September 30, 2000. Consumer loans of $7,000 were written off in
June 2001 offset by the provision for losses on loans of $9,000 for the nine
months ended June 30, 2001. The allowance represented .24% and .26% of total
loans at June 30, 2001 and September 30, 2000, respectively. Nonperforming loans
totaled $210,000 and $223,000 at June 30, 2001 and September 30, 2000,
respectively.
Page 9 of 19 pages
10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 2000 to June 30,
- -----------------------------------------------------------------------------
2001 (continued)
- ----
Deposits totaled $75.1 million at June 30, 2001, an increase of $4.4 million, or
6.2%, over the September 30, 2000 amount. During the nine months ended June 30,
2001, certificates of deposit increased by $4.4 million and premium savings
accounts increased by $940,000, as Peoples Federal offered rates designed to
maintain certificates and control interest costs. NOW accounts decreased by
$127,000 and passbook deposits and statement savings accounts decreased by
$795,000 during the period. PFC used funds from increases in deposits primarily
to fund loan originations.
Advances from the FHLB totaled $20.0 million at June 30, 2001, an increase of
$1.4 million, or 7.2%, over the September 30, 2000 amount, as PFC used advances
primarily to fund loan originations. At June 30, 2001, borrowings included $1.0
million of variable rate advances maturing in fiscal 2001 and fixed rate
advances of $3.0 million maturing in fiscal 2002. The remainder of advances from
the FHLB were comprised of convertible fixed rate advances of $16.0 million with
final maturities currently scheduled for 2010 and 2011.
The Association is subject to the regulatory capital requirements of the Office
of Thrift Supervision (the "OTS"). Failure to meet minimum capital requirements
can initiate certain mandatory - and possibly additional discretionary - actions
by regulators that, if undertaken, could have a direct material effect on the
Association's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must meet
specific capital guidelines that involve quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Association's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk-weightings, and other factors.
Such minimum capital standards generally require the maintenance of regulatory
capital sufficient to meet each of three tests, hereinafter described as the
tangible capital requirement, the core capital requirement and the risk-based
capital requirement. The tangible capital requirement provides for minimum
tangible capital (defined as stockholders' equity less all intangible assets)
equal to 1.5% of adjusted total assets. The core capital requirement provides
for minimum core capital (tangible capital plus certain forms of supervisory
goodwill and other qualifying intangible assets) generally equal to 4.0% of
adjusted total assets, except for those associations with the highest
examination rating and acceptable levels of risk.
The risk-based capital requirement provides for the maintenance of adjusted core
capital plus general loss allowances equal to 8.0% of risk-weighted assets. In
computing risk-weighted assets, the Association multiplies the value of each
asset on its statement of financial condition by a defined risk-weighting
factor, e.g., one-to-four family residential loans carry a risk-weighted factor
of 50%.
Page 10 of 19 pages
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Discussion of Financial Condition Changes from September 30, 2000 to June 30,
- -----------------------------------------------------------------------------
2001 (continued)
- ----------------
As of June 30, 2001 and September 30, 2000, management believes that the
Association met all capital adequacy requirements to which it was subject.
AS OF JUNE 30, 2001
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
(Dollars in thousands)
Greater than Greater than Greater than Greater than
Tangible capital $9,454 8.9% or equal to $1,586 or equal to 1.5% or equal to $5,286 or equal to 5.0%
Greater than Greater than Greater than Greater than
Core capital $9,454 8.9% or equal to $4,229 or equal to 4.0% or equal to $6,343 or equal to 6.0%
Greater than Greater than Greater than Greater than
Risk-based capital $9,858 15.8% or equal to $5,002 or equal to 8.0% or equal to $6,253 or equal to 10.0%
AS OF SEPTEMBER 30, 2000
TO BE "WELL-
CAPITALIZED" UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------ ----------------- -----------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
(Dollars in thousands)
Greater than Greater than Greater than Greater than
Tangible capital $9,000 9.0% or equal to $1,503 or equal to 1.5% or equal to $5,011 or equal to 5.0%
Greater than Greater than Greater than Greater than
Core capital $9,000 9.0% or equal to $4,009 or equal to 4.0% or equal to $6,013 or equal to 6.0%
Greater than Greater than Greater than Greater than
Risk-based capital $9,464 16.7% or equal to $4,529 or equal to 8.0% or equal to $5,661 or equal to 10.0%
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2001
- ------------------------------------------------------------------------------
and 2000
- --------
General
- -------
Net earnings for the nine months ended June 30, 2001, totaled $413,000, compared
to $420,000 for the same period in 2000, a decrease of $7,000, or 1.7%. The
decline in earnings resulted primarily from a decrease in net interest income of
$47,000, or 2.3%, and a decrease in gain on sale of investment securities of
$132,000, or 34.1%, which were partially offset by a decrease in general,
administrative and other expense of $97,000, or 5.3% and an increase in other
operating income of $74,000 or 180.5%.
Page 11 of 19 pages
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2001
- ------------------------------------------------------------------------------
and 2000 (continued)
- --------
Net Interest Income
- -------------------
Interest income on loans for the nine months ended June 30, 2001, increased by
$702,000, or 15.9%, over the 2000 period. This increase resulted primarily from
an $11.4 million, or 14.6%, increase in the average net loan portfolio balance
outstanding and an increase in weighted-average yield from 7.56% in the nine
months ended June 30, 2000 to 7.64% in the same period for 2001. Interest income
on mortgage-backed and related securities, securities and interest-bearing
deposits decreased by $122,000, or 16.7%, from the 2000 period. This decrease
resulted from a $2.7 million, or 18.1%, decrease in average portfolio balances
outstanding, partly offset by an increase in weighted average yield from 6.41%
for the nine months ended June 30, 2000 to 6.52% in the same period for 2001.
Interest expense on deposits increased by $439,000, or 18.0%, for the nine
months ended June 30, 2001, as compared to the same period in 2000. This
increase resulted from an increase of $4.1 million, or 6.0%, in average deposit
balances outstanding, coupled with an increase in the weighted-average cost of
funds, from 4.74% in 2000 to 5.27% in 2001. Interest expense on FHLB advances
increased by $188,000, or 28.4%, for the nine months ended June 30, 2001, as
compared to the same period in 2000. The average advances outstanding from the
FHLB increased to $19.7 million in the nine months ended June 30, 2001, from
$14.9 million in the same period of 2000, partially offset by a decrease in the
weighted-average interest rate from 5.94% in 2000 to 5.76% in 2001.
As a result of the foregoing changes in interest income and interest expense,
net interest income decreased by $47,000, or 2.3%, for the nine months ended
June 30, 2001, compared to the same period in 2000. The interest rate spread
decreased to 2.13% for the nine months ended June 30, 2001, as compared to 2.41%
for the corresponding 2000 nine-month period. The net interest margin decreased
to 2.60% for the nine months ended June 30, 2001, as compared to 2.91% for the
comparable 2000 period.
Provision for Losses on Loans
- -----------------------------
It is the Association's policy to provide valuation allowances for losses on
loans based on past loan loss experience, changes in the composition of the loan
portfolio, trends in the level of delinquent and problem loans, adverse
situations that may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current and anticipated economic conditions in
the primary lending area. The allowance for loan losses is increased by charges
to earnings and decreased by charge-offs (net of recoveries). After considering
the above guidelines, management decided to increase the allowance for loan
losses by $9,000 during both the nine- month periods ended June 30, 2001 and
2000. There can be no assurance that the allowance for loan losses of Peoples
Federal will be adequate to cover losses on nonperforming loans in the future.
Page 12 of 19 pages
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2001
- ------------------------------------------------------------------------------
and 2000 (continued)
- --------
Other Income
- ------------
Other income totaled $371,000 for the nine months ended June 30, 2001, a
decrease of $57,000, or 13.3%, from the 2000 amount. The decrease was primarily
the result of a smaller gain on sale of FHLMC common stock during the nine
months ended June 30, 2001 than for the comparable 2000 period. FHLMC common
stock was sold during the nine months ended June 30, 2001 for $259,000,
resulting in a realized gain of $255,000, while FHLMC common stock was sold
during the nine months ended June 30, 2000 for $395,000, resulting in a realized
gain of $387,000. Other operating income amounted to $115,000 for nine-month
period ended June 30, 2001, an increase of $74,000, or 180.5%, over the
comparable 2000 period. The ATM installed at the branch located in the Massillon
Marketplace Wal-Mart and increased ATM transactions at all locations, along with
increased NOW fee income, have been the principal sources of increased other
operating income. Other operating income also includes home equity line of
credit and other fee income, safe deposit box rentals and late charges on loans.
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense decreased by $97,000, or 5.3%, for the
nine months ended June 30, 2001, compared to the same period in 2000.
Employee compensation and benefits decreased by $180,000, or 16.6%. Hiring of
new employees, principally for the branch located in the Massillon Marketplace
Wal-Mart, and the effect of normal merit increases added $148,000 to employee
compensation for fiscal 2001 over fiscal 2000. Increased cost of health
insurance, principally due to increased insurance premiums and premiums for new
employees, added $21,000 to the cost of employee compensation and benefits.
Payroll tax expense decreased by $9,000 for fiscal 2001 compared to fiscal 2000
principally due to employment taxes on vested deferred compensation benefits
accrued in June 2000, partially offset by taxes on increased compensation in
fiscal 2001 over fiscal 2000. The provision to establish the Peoples Federal
Savings and Loan Association of Massillon Deferred Compensation Plan of $261,000
was recorded in March 2000, while no deferred compensation expense provision has
been required in fiscal 2001. Termination of the Peoples Financial Corporation
Recognition and Retention Plan and Trust Agreement the ("RRP") decreased benefit
costs by $80,000 for the nine months ended June 30, 2001, compared to the same
period in 2000 and termination of the Peoples Financial Corporation Employees
Stock Ownership Plan the ("ESOP") decreased benefit costs by $6,000, while
resumption of employer contributions to the Peoples Federal Savings and Loan
Association of Massillon 401(k) plan increased benefit costs by $11,000
year to year.
Occupancy and equipment for the nine months ended June 30, 2001, increased
$70,000, or 36.6%. Increases in occupancy and equipment expense for fiscal 2001
compared to 2000 were $44,000 for depreciation, $24,000 for rent and $2,000 for
maintenance, all principally due to operation of the branch located in the
Massillon Marketplace Wal-Mart.
Advertising increased by $19,000, or 43.2%, primarily due to increased local
media advertising of loan and deposit rates and new product and branch
promotions. Data processing increased by $23,000, or 26.7%, principally due to
the new branch and new products. Federal deposit insurance premiums increased by
$6,000, or 35.3.% due to increased premium rates.
Page 13 of 19 pages
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Nine-Month Periods Ended June 30, 2001
- ------------------------------------------------------------------------------
and 2000 (continued)
- --------
General, Administrative and Other Expense (continued)
- -----------------------------------------
Ohio franchise taxes for the nine months ended June 30, 2001, decreased by
$27,000, or 20.0%, compared to the 2000 period, due to a decrease in
shareholders' equity and a decrease in tax rates. Other operating expense
decreased by $8,000, or 2.9%, primarily due to decreases in professional and
supervisory and employee education and related travel costs, offset by increases
in communication and loan costs.
Federal Income Taxes
- --------------------
Federal income taxes are based on earnings before taxes for the nine months
ended June 30, 2001 and 2000. The expense was $196,000 for both nine-month
periods. The effective tax rates amounted to 32.2% and 31.8% for the nine months
ended June 30, 2001 and 2000, respectively.
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2001
- -------------------------------------------------------------------------------
and 2000
- --------
General
- -------
Net earnings for the three months ended June 30, 2001, totaled $154,000,
compared to $113,000 for the same period in 2000, an increase of $41,000, or
36.3%. The increase in earnings resulted primarily from an increase in net
interest income of $3,000, or .4%, an increase in other operating income from
$14,000 in fiscal 2000 to $43,000 in fiscal 2001, an increase in gain on sale of
investment securities of $96,000, which were partially offset by an increase in
general, administrative and other expense of $65,000, or 12.4%, and an increase
in federal income taxes of $23,000, or 45.1%.
Net Interest Income
- -------------------
Interest income on loans for the three months ended June 30, 2001, increased by
$183,000, or 11.9%, over the 2000 period. This increase resulted primarily from
a $9.9 million, or 12.2%, increase in the average net loan portfolio balance
outstanding offset by a decrease in weighted-average yield from 7.65% in the
three months ended June 30, 2000 to 7.62% in the 2001 period. Interest income on
mortgage-backed and related securities, investment securities and
interest-bearing deposits decreased by $52,000, or 22.0%, from the 2000 period.
This decrease resulted from a $1.8 million, or 12.4%, decrease in average
portfolio balances outstanding, and by a decrease in weighted average yield from
6.66% in the 2000 quarter to 5.94% in the 2001 quarter.
Page 14 of 19 pages
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2001
- -------------------------------------------------------------------------------
and 2000 (continued)
- --------
Net Interest Income (continued)
- -------------------
Interest expense on deposits increased by $137,000, or 16.4%, for the three
months ended June 30, 2001, as compared to the same period in 2000. This
increase resulted from an increase of $5.4 million, or 7.9%, in average deposit
balances outstanding, coupled with an increase in the weighted-average cost of
funds, from 4.87% in 2000 to 5.25% in 2001. Interest expense on FHLB advances
decreased by $9,000, or 3.4%, for the three months ended June 30, 2001, as
compared to the same period in 2000. This decrease resulted from a decrease in
weighted-average cost of funds, from 6.19% in 2000 to 5.16% in 2001, partially
offset by an increase of $2.8 million, or 16.0%, in average FHLB advance
balances outstanding.
As a result of the foregoing changes in interest income and interest expense,
net interest income increased by $3,000, or .4%, for the three months ended June
30, 2001, compared to the same period in 2000. The interest rate spread
decreased to 2.18% for the three months ended June 30, 2001, as compared to
2.36% for the corresponding 2000 three-month period. The net interest margin
decreased to 2.63% for the three months ended June 30, 2001, as compared to
2.84% for the comparable 2000 period.
Provision for Losses on Loans
- -----------------------------
It is the Association's policy to provide valuation allowances for estimated
losses on loans based on past loan loss experience, changes in the composition
of the loan portfolio, trends in the level of delinquent and problem loans,
adverse situations that may affect the borrower's ability to repay, the
estimated value of any underlying collateral and current and anticipated
economic conditions in the primary lending area. The allowance for loan losses
is increased by charges to earnings and decreased by charge-offs (net of
recoveries). After considering the above guidelines, management decided to
increase the allowance for loan losses by $3,000 during both of the three month
periods ended June 30, 2001 and 2000. There can be no assurance that the
allowance for loan losses of Peoples Federal will be adequate to cover losses on
nonperforming loans in the future.
Other Income
- ------------
Other income totaled $140,000 for the three months ended June 30, 2001, an
increase of $126,000 over the 2000 amount. The increase was primarily the result
of a gain on sale of FHLMC common stock during the three months ended June 30,
2001, with no sale during the comparable 2000 period. FHLMC common stock was
sold in May 2001 for $97,000, resulting in a realized gain of $96,000. Other
operating income amounted to $43,000 for three-month period ended June 30, 2001,
an increase of $29,000, or 207.1%, over the comparable 2000 period. The ATM
installed at the branch located in the Massillon Marketplace Wal-Mart and
increased ATM transactions at all locations along with increased NOW fee income
have been the principal sources of increased other operating income. Other
operating income also includes home equity line of credit and other fee income,
safe deposit box rentals and late charges on loans.
Page 15 of 19 pages
16
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
PEOPLES FINANCIAL CORPORATION
Comparison of Operating Results for the Three-Month Periods Ended June 30, 2001
- -------------------------------------------------------------------------------
and 2000 (continued)
- --------
General, Administrative and Other Expense
- -----------------------------------------
General, administrative and other expense increased by $65,000, or 12.4%, for
the three months ended March 31, 2001, compared to the same period in 2000.
Employee compensation and benefits increased by $34,000, or 12.5%. Hiring of new
employees, principally for the branch located in the Massillon Marketplace
Wal-Mart, and the effect of normal merit increases added $42,000 to employee
compensation for fiscal 2001 over fiscal 2000. Increased cost of health
insurance, principally due to increased insurance premiums and premiums for new
employees, added $6,000 to the cost of employee compensation and benefits.
Resumption of contributions to the 401(k) plan increased benefit costs by $8,000
for fiscal 2001 over fiscal 2000. Payroll tax expense decreased by $14,000 for
the three months ended June 30, 2001 over the three months ended June 30, 2000
principally due to employment taxes paid on vested deferred compensation
benefits accrued in June 2000, partially offset by taxes on increased
compensation in fiscal 2001 over fiscal 2000. Termination of the ESOP and RRP
decreased benefit costs by $8,000 for fiscal 2001 over fiscal 2000.
Occupancy and equipment for the three months ended June 30, 2001, increased
$27,000, or 42.9%. Increases in occupancy and equipment expense for fiscal 2001
compared to 2000 were $16,000 for depreciation, $8,000 for rent and $3,000 for
maintenance, all principally due to operation of the branch located in the
Massillon Marketplace Wal-Mart.
Data processing increased by $8,000, or 27.6%, principally due to the new branch
and new products. Federal deposit insurance premiums increased by $5,000, or
166.7%, as premium rates were increased. Advertising increased by $6,000, or
33.3%, primarily due to increased local media advertising of loan and deposit
rates and new product and branch promotions
Ohio franchise taxes for the three months ended June 30, 2001, decreased by
$10,000, or 23.6%, compared to the 2000 period, due primarily to a decrease in
shareholders' equity and decreased tax rates. Other operating expense decreased
by $5,000, or 5.2%, primarily due to decreases in professional and supervisory,
employee education and related travel and office supplies and expense costs,
offset by increases in loan expense.
Federal Income Taxes
- --------------------
Federal income taxes are based on earnings before taxes for the three months
ended June 30, 2001 and 2000. The increase of $23,000, or 45.1%, in the
provision for income taxes resulted primarily from the $64,000, or 39.0%,
increase in earnings before income taxes. The effective tax rates amounted to
32.5% and 31.1% for the three months ended June 30, 2001 and 2000, respectively.
Page 16 of 19 pages
17
PART II
-------
PEOPLES FINANCIAL CORPORATION
ITEM 1. Legal Proceedings
-----------------
Not applicable
ITEM 2. Changes in Securities
---------------------
Not applicable
ITEM 3. Defaults Upon Senior Securities
-------------------------------
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
Not applicable
ITEM 5. Other Information
-----------------
Not applicable
Page 17 of 19 pages
18
PART II (Continued)
-------------------
PEOPLES FINANCIAL CORPORATION
ITEM 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
11. Statement regarding Computation of Earnings per common Share.
Basic earnings per share is computed by dividing net income by the
weighted average number of shares outstanding during the period.
Diluted earnings per share is computed using the weighted average
number of shares determined for the basic computation plus the number
of shares of common stock that would be issued assuming all
contingently issuable shares having a dilutive effect on earnings per
share were outstanding for the period.
The weighted average number of common shares outstanding for basic and
diluted earnings per share computations were as follows:
Nine Months Ended Three Months Ended
June 30, June 30,
---------- --------
2001 2000 2001 2000
------------- ------------- ------------- -------------
Numerator:
Net income (in thousands) $ 413 $ 420 $ 154 $ 113
Denominator:
Weighted-average common
shares outstanding
(basic and diluted) 1,234,085 1,253,446 1,234,085 1,234,085
Earnings per share:
Basic $ .33 $ .34 $ .12 $ .09
Diluted $ .33 $ .34 $ .12 $ .09
99. Safe Harbor under the Private Securities Litigation Reform Act of
1995.
(b) Reports on Form 8-K:
Not applicable.
Page 18 of 19 pages
19
SIGNATURES
----------
PEOPLES FINANCIAL CORPORATION
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: August 13, 2001 By: /s/Paul von Gunten
--------------------- -----------------------------
Paul von Gunten
President and Chief
Executive Officer
Date: August 13, 2001 By: /s/James R. Rinehart
--------------------- -----------------------------
James R. Rinehart
Treasurer
Page 19 of 19 pages